Starting valuations were much higher this time, and the rate increases were significantly faster.
It’s actually the fastest fed tightening ever, from a percentage change perspective.
Weren’t many 100x sales companies in 2015. Even after the recent carnage there are still many 10-40x sales companies, which is pretty much unjustifiable with a 4.5% risk free rate
Things like DASH which have high sales multiples relative to what a realistic margin is for them long term. Or software stocks like NET that are still over 10x sales, without a sufficiently commensurate growth rate to justify it.
A company with a 20x PE implies a 5% yield this year. I can get 5% on a AAA bond effectively risk free, or 4.5% on a treasury absolutely risk free. There is close to 0 fundamental justification for a lot of tech stocks still.
CMG with 50 PE implies a 2% yield. Why? What logic is there to justify this? You can invent some story about 20 years from now, or I can take a guaranteed return that’s many times higher today.
Some stocks are very fairly valued though, valuations are all over the place right now and not consistent within sectors. Should Apple really have twice the valuation multiple as Google? Not in my opinion
the market typically doesn't follow this "this P/E must yield this much return" rule from what I can tell. We've had many many many 8-10%+ ROI years despite whatever the "this P/E implies this much yield/return" rule dictates.
Comments
Starting valuations were much higher this time, and the rate increases were significantly faster.
It’s actually the fastest fed tightening ever, from a percentage change perspective.
Weren’t many 100x sales companies in 2015. Even after the recent carnage there are still many 10-40x sales companies, which is pretty much unjustifiable with a 4.5% risk free rate
so you are saying from a valuation perspective, we have more room to fall?
Some stocks, yes.
Things like DASH which have high sales multiples relative to what a realistic margin is for them long term. Or software stocks like NET that are still over 10x sales, without a sufficiently commensurate growth rate to justify it.
A company with a 20x PE implies a 5% yield this year. I can get 5% on a AAA bond effectively risk free, or 4.5% on a treasury absolutely risk free. There is close to 0 fundamental justification for a lot of tech stocks still.
CMG with 50 PE implies a 2% yield. Why? What logic is there to justify this? You can invent some story about 20 years from now, or I can take a guaranteed return that’s many times higher today.
Some stocks are very fairly valued though, valuations are all over the place right now and not consistent within sectors. Should Apple really have twice the valuation multiple as Google? Not in my opinion
Isn't this kind of a useless stat?
https://www.slickcharts.com/sp500/returns
https://www.multpl.com/s-p-500-pe-ratio
the market typically doesn't follow this "this P/E must yield this much return" rule from what I can tell. We've had many many many 8-10%+ ROI years despite whatever the "this P/E implies this much yield/return" rule dictates.